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Middle management: the overlooked ingredient of a successful M&A deal

June 2019  |  SPECIAL REPORT: MERGERS & ACQUISITIONS

Financier Worldwide Magazine

June 2019 Issue


For M&A activity, 2018 marked the third-highest year on record. Announced transactions exceeded over $4 trillion, and cross-border deals alone accounted for $1.2 trillion – a 23 percent increase from 2017.

This recent momentum looks all but certain to make 2019 an active year in the M&A sphere. For that reason, business executives need to continue putting thought into the barriers to M&A success. A huge pitfall to avoid: putting middle management on the backburner.

According to our research into companies performing deals, interview respondents who thought that their companies were generally successful at achieving deal outcomes also believed that engaging middle management played a significant role in achieving those accomplishments. However, middle managers are often overlooked in M&A deals. With attention given almost exclusively to the target company’s top management and executive management, this management tier is the forgotten heart of deal success.

The power of middle management to enable companies to thrive and grow should come as no surprise for global executives. Middle management acts as the important link between the C-suite’s goals and strategies and the employees that execute them.

Stanford University researcher Behnam Tabrizi’s work also illustrates this management tier’s importance. When he studied change and innovation projects in 56 companies, he found more than 68 percent of these ventures failed. But, having middle managers who were able to successfully influence up and down the leadership chain was the key factor for projects that succeeded. Given that M&A is a major change event for both the acquirer and acquired, it thus makes sense to assume that middle management is one of the most important factors to success in such deals.

The steps to understanding and taking advantage of middle management in M&A deals are conceptually simple but difficult to execute. More often than not, business executives realise the importance of leadership to successful deals. But they are sometimes unsure of how to properly address it.

The first step to focusing on middle managers in an M&A deal is understanding their specific leadership strengths and risk areas. Successful companies assess and identify the leaders with the right skills, including those at the middle-management level. Successful acquirers apply the right people with the right skills to lead at each phase of the deal and, ultimately, to achieve deal objectives. As an example, look at the cultural assessment work that identifies misaligned areas between the acquirer and the target. This leads to change management and communications plans that either create a new organisational culture for the two companies or successfully integrates the target into the ethos of the acquiring business. Successful acquirers need leaders in both companies with identifiable skill sets, such as the abilities to think strategically, execute plans and focus on customer needs. These traits can be assessed deep in the companies, including among middle managers and frontline supervisors.

Successful acquirers also collaboratively map out the future with their leadership teams. This establishes what the Center for Creative Leadership calls ‘Direction-Alignment-Commitment’. ‘Direction’ identifies what the collective leadership team attempts to achieve in the new organisation. ‘Alignment’ develops conditions for effective collaboration, coordination and integration of work to achieve that direction. Lastly, ‘Commitment’ identifies how the leadership team places collective goals ahead of individual achievements.

One executive interviewed for our study revealed that, as a standard operating procedure post day one of M&A deals, the company brings the two leadership teams together to initiate this process. Additionally, the company engages middle management leaders by helping them to understand their leadership strengths and developmental areas. It offers coaching and mentoring to help them adjust to the new operational environment and ensures that these leaders stay focused on the engagement of the employees they lead, as the integration pace ebbs and flows. While some companies may see this as an unnecessary added cost, this company sees it as a necessary investment to increase the probabilities of deal success. What this case illustrates is that, while many companies tend to focus on the executive management level for this type of interaction, middle management should be invited to participate as well.

Culture remains central to how successful M&A deals prove to be. While that focus is necessary and warranted, however, the reality is that culture alone will not determine whether a deal succeeds or ends up like past failures such as the Yahoo-Tumblr or AOL-TimeWarner deals.

The importance of leadership to efficient and effective company performance is a critical factor that should not be disregarded in M&A. In a leadership-focused approach to deal success, appreciating and assessing middle management is the secret ingredient that often spells the difference between success and failure.

 

Amy Lui Abel is a managing director and J. Keith Dunbar is a distinguished principal research fellow at The Conference Board. Ms Abel can be contacted by email: amy.abel@conference-board.org. Mr Dunbar can be contacted by email: keith@jkdtalent.com.

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